18 May 2022

Don’t listen to rent-seekers opposing cuts to food taxes

By

Every percentage point added to CPI means more people plunged into poverty – that’s the reality of inflation. And, as the IFS and  campaigner Jack Monroe have pointed out, it hits those on the lowest incomes the hardest, as they are the most sensitive to even the smallest changes in prices. So it’s right that the Government is looking at a wide range of policies to tackle the cost of living crisis. At a time like this, every little really does help.

So it’s disappointing that trade associations, lobby groups, and the current international trade secretary, have criticised the Boris Johnson and Jacob Rees-Mogg’s proposal to cut tariffs on food imports. They argue that such a change would only bring negligible benefits to consumers, weaken the UK’s negotiating power, and damage British businesses.

They are correct that it is unlikely cutting tariffs would lead to a massive decrease in food prices. And, given that high inflation has many causes, cutting tariffs should not be seen as a panacea. But that doesn’t mean we shouldn’t do it anyway. The high tariffs the UK levies on food are passed on to the consumer, therefore removing them should lead to lower prices in the supermarkets. Even a small reduction in the cost of the weekly shop could make a big difference to the people who are really struggling in our country.

The Department for International Trade has raised concerns that unilaterally lowering tariffs would weaken the UK’s negotiating position in future free trade negotiations. The logic behind this is that the UK will have less to offer other nations in terms of market access. Although this is true to an extent, it has to be noted that the proposals only cover goods not produced by the UK. This is important because, as somebody who has worked on trade negotiations, the biggest win for another country would be for the UK to scrap tariffs and allow greater market access on products it also produces. As such, the UK still has much to offer in trade negotiations. Furthermore, the tariff cuts could be temporary and so should have no real impact on our negotiating power.

As for the argument it could be damaging to British businesses, this is the weakest objection of all. Since the proposal only covers food not produced in the UK, it’s difficult to see how British producers would suddenly face a massive increase in competition. However, the National Farmers Union has claimed that such a move could still damage British businesses as consumers may switch from a British product to a completely different foreign product due to it being cheaper. 

This is a spurious argument, but it does reveal how trade policy is viewed by pressure groups such as the NFU, the Government, and opposition parties. International trade is often seen as a kind of zero-sum game where exports are good and imports are bad. If country A wants to increase its exports to country B (good) it will have to increase its imports from country B (bad) with the ‘winner’ is the country which manages to gain the most market access without granting similar concessions to the other country. 

This is a completely flawed way of viewing trade. More imports means lower prices and more choice for consumers. This is a good thing. Moreover, it is not just consumers who benefit from cheaper goods. Lower food prices mean that people have more money to spend on other products, benefitting other sectors of the economy. What is more, greater competition is a good thing for British businesses, as it forces them to up their game by becoming more productive, cost-effective and innovative.

Now more than ever, we need a trade policy that works not for the powerful lobby groups, landowners, and big businesses – but for consumers. The middle of the worst cost of living crisis in decades is no time to let viable solutions get shot down by rent-seekers. Cutting tariffs on food imports, alongside other policies such as increasing universal credit, will go at least some way to help the very poorest people in this country deal with the high cost of living.

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Ben Ramanauskas is a Research Economist at Oxford University and a former adviser to a government minister.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.